Category:

Dateline:

Public Company Information:

NYSE:

BAC

"Investors are showing belief in the economy but with two big question marks: Are we on the brink of a disruptive event? And why, at this point in the cycle, isn’t this recovery stronger?"

Global investors have increased cash and scaled back risk-taking, amid
fears of geopolitical instability and questions about the strength of
the global economic recovery, according to the BofA Merrill Lynch Fund
Manager Survey for May.

Investors are sitting on more cash and have reduced equity holdings
compared to a month ago. Average cash levels have reached 5 percent of
portfolios – the highest level since June 2012 and up from 4.8 percent
in April. A net 22 percent are taking below normal levels of risk, up
from 11 percent a month ago. The proportion of asset allocators
overweight equities has fallen to a net 37 percent from a net 45 percent
last month.

Respondents to the global survey are confident that both the world
economy and corporate performance are improving, but question the rate
of growth. A net 66 percent of the panel expects the economy to
strengthen in the coming 12 months, up from a net 62 percent in April. A
net 49 percent say that corporate profits will rise in the coming year,
up five percentage points month-on-month. But nearly three-quarters (72
percent) predict “below trend” growth for the global economy, and a net
20 percent say it’s unlikely corporate profits will grow by 10 percent
or more in the year ahead.

Investors also see two major risks to market stability. One-third of the
global panel believes that the risk of Chinese debt defaults poses the
biggest tail risk. And 36 percent say a geopolitical crisis is the
greatest threat.

“Investors are showing belief in the economy but with two big question
marks: Are we on the brink of a disruptive event? And why, at this point
in the cycle, isn’t this recovery stronger?” said Michael Hartnett,
chief investment strategist at BofA Merrill Lynch Global Research.

“Specifically, within Europe, investors are all aboard the periphery
train, and there’s now simply no margin for error. Spanish and Italian
equities are preferred over those in the U.K. and Switzerland, while
eurozone periphery debt is seen as the most crowded trade globally,”
said Obe Ejikeme, European equity and quantitative strategist.

Momentum builds behind Europe

European equities have bucked the broader monthly trend of seeing
allocations scaled back, and investors have indicated the positive flows
should continue. A net 36 percent of global asset allocators say they
are overweight eurozone equities, up from a net 30 percent in April.
Allocations to other developed markets, namely the U.S. and Japan, fell
month-on-month.

Europe is also the region most in favor looking ahead. A net 28 percent
say that it’s the region they most want to overweight in the coming 12
months, up from a net 23 percent a month ago. A net 14 percent say that
European equities are undervalued.

The U.S. is the least-favored region with a net 18 percent saying it’s
the region they most want to underweight, up from a net 9 percent in
April. Forward-looking sentiment for emerging markets has improved
slightly over the past month and a net 3 percent say it’s the region the
most want to overweight.

Nonetheless, the panel has sounded two warnings about European assets.
First is that significantly more investors say that being long EU
periphery debt is the most crowded trade – 35 percent of the panel take
that view this month, up from 19 percent in April. Investors also
continue to see the euro as the most overvalued currency, with 58
percent of the panel taking that view ahead of ECB governor Mario Draghi
hinting towards policies that could lead to weakness in the euro.

European investors’ view of their region reflects the global
perspective. They forecast economic growth, but a net 30 percent predict
less than 10 percent corporate profit growth in the region. Average cash
balances have risen to 4.8 percent, from 3.8 percent in April.

Global sector switches reflect risk-off stance

Changes in global sectoral equity allocations from April to May
reinforced the sense of investors scaling back risk. The biggest
positive swings were towards Utilities and Energy, with a net 15 percent
of investors increasing their allocations to these more defensive
sectors. A net 14 percent of investors scaled back positions in Banks,
and a net 8 percent reduced holdings in Technology.

Chicken and egg question over putting cash to work

While investors have increased their cash levels close to two-year
highs, they remain keen to see companies put their cash to work. A net
66 percent of the global panel says that corporates are under-investing,
up two percentage points on April’s figure. And 60 percent say that
“increasing capital spending” is the best use of cash flow, up from 58
percent last month.

Fund Manager SurveyAn overall total of 218 panelists with US$587
billion of assets under management participated in the survey from 1 May
to 8 May 2014. A total of 170 managers, managing US$455 billion,
participated in the global survey. A total of 106 managers, managing
US$230 billion, participated in the regional surveys. The survey was
conducted by BofA Merrill Lynch Global Research with the help of market
research company TNS. Through its international network in more than 50
countries, TNS provides market information services in over 80 countries
to national and multi-national organizations. It is ranked as the
fourth-largest market information group in the world.

BofA Merrill Lynch Global ResearchThe BofA Merrill Lynch Global
Research franchise covers more than 3,300 stocks and 1,190 credits
globally and ranks in the top tier in many external surveys. Most
recently, the group was named Top Global Research Firm of 2013 by
Institutional Investor magazine; No. 1 in the 2014 Institutional
Investor All-Europe survey; No. 1 in the 2013 Institutional Investor
All-Asia survey for the third consecutive year; No. 1 in the
Institutional Investor 2013 Emerging Market & Fixed Income Survey; No. 2
in the 2013 Institutional Investor All-America survey; No. 2 in the 2013
All-Latin America survey; and No. 2 in the 2013 All-China survey. The
group was also named No. 2 in the 2014 Institutional Investor All-Europe
Fixed Income Research survey; and No. 2 in the 2013 All-America Fixed
Income survey for the second consecutive year.

Bank of AmericaBank of America is one of the world's largest
financial institutions, serving individual consumers, small businesses,
middle-market businesses and large corporations with a full range of
banking, investing, asset management and other financial and risk
management products and services. The company provides unmatched
convenience in the United States, serving approximately 49 million
consumer and small business relationships with approximately 5,100
retail banking offices and approximately 16,200 ATMs and award-winning
online banking with 30 million active users and more than 15 million
mobile users. Bank of America is among the world's leading wealth
management companies and is a global leader in corporate and investment
banking and trading across a broad range of asset classes, serving
corporations, governments, institutions and individuals around the
world. Bank of America offers industry-leading support to approximately
3 million small business owners through a suite of innovative,
easy-to-use online products and services. The company serves clients
through operations in more than 40 countries. Bank of America
Corporation stock (NYSE: BAC) is listed on the New York Stock Exchange.

Bank of America Merrill Lynch is the marketing name for the global
banking and global markets businesses of Bank of America Corporation.
Lending, derivatives, and other commercial banking activities are
performed globally by banking affiliates of Bank of America Corporation,
including Bank of America, N.A., member FDIC. Securities, strategic
advisory, and other investment banking activities are performed globally
by investment banking affiliates of Bank of America Corporation
(“Investment Banking Affiliates”), including, in the United States,
Merrill Lynch, Pierce, Fenner & Smith Incorporated, which is a
registered broker-dealer and a member of FINRA and SIPC, and, in other
jurisdictions, locally registered entities. Investment products offered
by Investment Banking Affiliates: Are Not FDIC Insured * May Lose Value
* Are Not Bank Guaranteed.